It’s a long time since anybody described Currys, or Dixons as it was in a former incarnation, as a jewel of the London stock market. The electricals retailer was relegated from the FTSE 100 index as long ago as 2017, soon after its foolish value-destroying merger with Carphone Warehouse. These days it exists in that sub-£1bn category of under-analysed stocks that struggle to generate investor interest, at least from traditional funds that used to be the bedrock of the market.
A takeover by private equity or an overseas predator has looked a possible plotline for a while, given how far the value has dropped from the £3.8bn at the time of the Carphone combo. There was no great shock in the news that the US hedge fund Elliott, a happy owner of the Waterstones bookshop chain, made an offer at the end of last week. The appearance of JD.com, one of China’s answers to Amazon, as a potential rival bidder is more surprising but, again, one can see the logic. Currys, despite it all, still generates annual revenues of almost £10bn and enjoys market-leading positions in the UK and Scandinavia, which is enough to get on to international radars.
But one hopes this saga doesn’t turn into a familiar tale of a UK company departing for less than it’s worth because local investors are too disengaged. There is a fair case that Currys is worth substantially more than Elliott’s opening shot of 62p a share, or £700m.
The board of Currys rightly rejected that effort as a “significant” undervaluation, and one hopes the directors will say the same about offers several rungs up the ladder. Yes, the shares, up 38% at 65p on Monday, traded at 47p last week but broker Peel Hunt, for one, reckons there’s no need for the board to engage at anything less than 80p. Over at Investec, analysts had a 78p target price before the fun even started.
None of which is to deny that Currys has frustrated its long-term owners. The Carphone merger was one of the worst deals in modern retailing history – the mobile phone market shifted and all the standalone phone shops were closed in 2020. Then, after the Covid surge in demand for electrical goods, the previously reliable Nordic business ran into stiffer local competition and Currys was caught half asleep. The point, though, is that the position now looks stable. The chief executive, Alex Baldock, last month nudged up this year’s pre-tax profits guidance to £105m-£115m.
A complication in the background is a deficit in the pension fund of about £250m that will require top-up payments for several years, limiting cash for dividends. On the other side of the ledger, the group should soon be debt-free after agreeing the sale of its Greek business for £156m. If the ambition to achieve a 3% profit margin in the core operations is credible – it ought to be – the germ of a turnaround story is in place. The consumer weather should also improve when interest rates start to fall.
At 62p, Currys would have been valued at just seven times next year’s projected earnings, on Peel Hunt’s numbers. Even in a soggy retail sector, that’s a miserable rating. There will be several more rounds of this saga to come, one suspects, but the job of Currys’ board is to play hardball. If the opportunistic bidders can’t be pushed close to £1bn, there is no shame in staying independent.
